Period

1Q16

Actual vs. Expectations

At 19%/20% of house/street’s full-year FY16 estimates, 1Q16 net profit of RM186.7m came in below expectations, largely due to the dismal PowerSeraya’s earnings while losses at YES continued to widen.

Dividends

No dividend was declared as expected.

Key Results Highlights

1Q16 net profit slid marginally by 1% QoQ to RM186.7m largely due to higher taxation charge, despite topline rising 13%, which was driven by PowerSeraya and Wessex Water. Meanwhile, PowerSeraya’s PBT continued its plunge, falling 32% QoQ to RM36.7m due to weakening margin. Meanwhile, local IPP’s PBT normalised to RM61.1m from a low of RM4.1m as 4Q15 when it was hit by higher depreciation charges coupled with a higher electricity generation sale in 1Q16.

1Q16 net profit fell 27% YoY from 243.8m in 1Q15 as a result of lower contribution from PowerSeraya and widening losses at YES to RM102.7m from RM77.9m previoulsy. On the flipside, Wessex Water’s earnings saw an improvement of 21% to RM241.7m thanks to lower operating expenses and the softening of MYR against GBP.

Outlook

Although the strong SGD should benefit YTLPOWR, the electricity market in Singapore remains competitive with new capacity coming onstream; thus, earnings prospects remain challenging. While the PPAs for one of the two local IPPs, Paka Power Plant has been awarded a PPA extension from Mar 2016 to Dec 2018 with typically less lucrative terms, earnings prospect for YES is set to be better judging from its growing subscriber base. For Wessex Water, earnings are expected to be fairly flattish until it gets the next tariff revision.

Change to Forecasts

We have revised FY16/FY17 estimates downward by 11%/5% as we cut: (i) PowerSeraya’s EBITDA to SGD325.5m/ SGD298.5m from SGD328.8m/SGD301.4m, and (ii) YES’ loss before tax to RM318.2m/RM272.2m from RM247.5m/RM272.2m previously.

Rating

Maintain OUTPERFORM

Valuation

Post earnings revision, our new price target is reduced to RM1.66/share from RM1.73/share, based on a 10% holdings company discount to its new RNAV of RM1.84/share from RM1.95/share previously.

Risks to Our Call

Lower dividend payouts, widening YES’ losses and a sharp recovery of MYR.

Source: Kenanga Research - 27 Nov 2015